Energy Market Analysis - 20-07-2016

The UK gas system remained short yesterday as an increase in gas-fired power generation and higher exports to Belgium lifted demand levels. Weaker UKCS and Norwegian flows also reduced supply levels, as did a drop in LNG send-outs; this helped towards gains on the near-curve. Further out, winter contracts displayed some decreases following strong upward movement on Friday.

The majority of power contracts moved higher on Tuesday as warmer temperatures resulted in an increase in cooling demand, with stronger gas also a bullish factor. Wind generation was expected to rise significantly today which limited increases on the prompt, while a fall in coal and Brent restricted gains on the far-curve.

Market Open

Market Open

Higher UKCS output has resulted in a long UK gas system this morning with a further improvement expected later in the session when the J-Area field returns online, following an outage. Lower renewable generation could contribute to a rise in gas-fired power generation tomorrow, supporting the prompt, while a weaker Pound has also led to gains on the rest of the near-curve. Further out, a drop in coal and oil prices restricted some of the upward movement.

Wind generation is expected to remain healthy until the weekend and temperatures are forecast to fall closer to the seasonal norm; this could result in some downward movement on the prompt this afternoon, following a slightly bullish opening. Elsewhere, coal and oil contracts display small losses which has helped to stabilise contracts on the far-curve.

Brent Summary

Brent 1st-nearby prices are generally stable this morning, shedding around $0.20/b since Tuesday's opening with no major changes to fundamentals or the global economy.

1-year forward prices

Market close data has revealed that the 1-year forward price for both commercial gas & commercial electricity increased slightly - closing at 44.22ppt and £43.10/MWh, respectively.